On European Central Bank – annual report 2024

MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION

on European Central Bank – annual report 2024

(2024/2054(INI))

The European Parliament,

– having regard to the 2023 Annual Report of the European Central Bank (ECB),

– having regard to the ECB’s feedback of 18 April 2024 on the input provided by Parliament as part of its resolution on the ECB’s 2022 Annual Report,

– having regard to the Statute of the European System of Central Banks (ESCB) and of the ECB, in particular Articles 2, 15 and 21 thereof,

– having regard to Articles 123(1), 125, 127(1) and (2), 130, 282(2) and 284(3) of the Treaty on the Functioning of the European Union (TFEU),

– having regard to Articles 3, 13 and 119 of the Treaty on European Union (TEU),

– having regard to the Eurosystem staff macroeconomic projections for the euro area of 7 March 2024, 6 June 2024 and 12 September 2024,

– having regard to the decisions taken by the ECB Governing Council of 25 January 2024, 7 March 2024, 11 April 2024, 6 June 2024, 18 July 2024, 12 September 2024 and 17 October 2024,

– having regard to Eurostat’s inflation estimate of 17 October 2024,

– having regard to the Commission’s Spring 2024 Economic Forecast published on 15 May 2024,

– having regard to the World Economic Outlook of the International Monetary Fund (IMF) of October 2024,

– having regard to the monetary dialogues with the President of the ECB, Christine Lagarde, of 15 February 2024 and 30 September 2024,

– having regard to its decision of 1 June 2023 on the arrangements in the form of an exchange of letters between the European Parliament and the ECB on structuring the practices for interaction in the area of central banking,

– having regard to the approval of the Transmission Protection Instrument (TPI) by the ECB Governing Council of 21 July 2022,

– having regard to the Commission proposal of 28 June 2023 for a regulation of the European Parliament and of the Council on the establishment of the digital euro (COM(2023)0369),

– having regard to the ECB’s first progress report of 24 June 2024 on the digital euro preparation phase,

– having regard to the four ECB progress reports of 13 July 2023, 24 April 2023, 21 December 2022 and 29 September 2022 on the digital euro investigation phase,

– having regard to the ECB monetary policy strategy review launched on 23 January 2020 and concluded on 8 July 2021, and to the upcoming 2025 monetary policy strategy assessment,

– having regard to the ECB’s operational framework review published on 13 March 2024,

– having regard to the ECB annual report on the international role of the euro of June 2024,

– having regard to the results of the ECB’s first-ever cyber resilience stress test of 26 July 2024,

– having regard to the publication of the revised Capital Requirements Regulation (‘CRR III’) and Capital Requirements Directive (‘CRD VI’) in the Official Journal of the European Union on 19 June 2024,

– having regard to the results of the ECB’s climate risk stress test of 8 July 2022,

– having regard to the 2024 update of the ECB’s Environmental Statement,

– having regard to Rule 142(1) of its Rules of Procedure,

– having regard to Rule 55 of its Rules of Procedure,

– having regard to the report of the Committee on Economic and Monetary Affairs (A10-0000/2024),

A. whereas, according to the September 2024 Eurosystem staff macroeconomic projections for the euro area, harmonised index of consumer prices (HICP) inflation reached a level of 1.7 % in the euro area in September 2024;

B. whereas HICP inflation is projected to increase somewhat in the last quarter of 2024, before declining to 2.2 % in 2025 and 1.9 % in 2026;

C. whereas the ECB’s primary objective is to maintain price stability, which it has defined as a level of inflation of 2 % over the medium term;

D. whereas the ECB is politically independent, which means that neither European Union (EU) institutions and agencies nor Member State governments should seek to influence it;

E. whereas political independence requires the ECB to refrain from taking political decisions;

F. whereas Article 123 TFEU and Article 21 of the Statute of the ESCB and of the ECB prohibit the monetary financing of governments;

G. whereas the principal payments from maturing securities purchased under the asset purchase programme (APP), and from January 2025 under the pandemic emergency purchase programme (PEPP), are no longer all reinvested;

H. whereas the euro is the second most important currency globally, lagging behind the US dollar by a significant margin, despite the euro area’s economic size in global trade;

I. whereas the ECB is accountable to Parliament as the EU institution representing EU citizens;

General overview

1. Welcomes the role of the ECB in safeguarding monetary stability; underlines that the ECB is the institution responsible for maintaining price stability in the euro area;

2. Underlines that the statutory independence of the ECB, as laid down in the Treaties, is a prerequisite for it to fulfil its mandate;

3. Highlights the importance of the ECB’s political independence, which should remain untouched; stresses that this independence requires the ECB to in turn refrain from taking political decisions;

4. Recognises the ECB’s efforts to bring inflation back down to levels commensurate with its target of 2 % over the medium term;

5. Regrets that inflation levels remain above the ECB’s target of 2 % in some Member States; emphasises that inflation diminishes the purchasing power of fixed incomes, savings and pensions and that it distorts the signalling function of prices that ensures an efficient allocation of resources;

6. Regrets that core inflation remains high, with only two euro area Member States reporting core inflation rates below 2 % in September 2024;

7. Warns the ECB against the temptation to lower interest rates too quickly, given the risk that inflation levels could start increasing again; stresses that the ECB itself expects a temporary increase in inflation levels in the last quarter of 2024 as previous sharp falls in energy prices drop out of the annual rates;

8. Recalls that the Economic and Monetary Union requires solid fiscal policies in the Member States in order to be able to respond to external shocks;

9. Recalls that prudent fiscal policies by the Member States can complement the ECB’s efforts to keep inflation low; highlights that addressing excessive public deficit and debt levels is crucial to maintaining a stable economy and sustainable growth;

10. Expresses concern about the high levels of government debt and deficits within the Member States and the risks of fiscal dominance that this entails;

Monetary policy

11. Strongly welcomes the fact that headline inflation has come down from its peak of 10.6 % in October 2022 to 1.7 % in September 2024;

12. Welcomes the decrease in core inflation from its peak of 7.6 % in March 2023 to 2.7 % in September 2024, but expresses its unease at its historically and persistently high level;

13. Regrets that it has taken the ECB more than three years to achieve a level of inflation that is commensurate with its target level of 2 %;

14. Stresses that the ECB was late to act when inflation started rising in January 2021 and surpassed the 2 % target level in July 2021; recalls in this regard the ECB’s assessment that inflation was expected to be only transitory;

15. Invites the ECB to fundamentally review and improve its models and their role in its policymaking in light of the subpar performance of the models in recent years;

16. Supports the ECB’s decision to scale back its asset purchase programmes, in view of the excess liquidity in the market and decreased levels of inflation;

17. Stresses that the ECB’s purchase programmes are unconventional policies that amount, in economic terms, to monetary financing, which is prohibited under Article 123(1) TFEU, if the ECB does not shrink back its balance sheet; calls on the ECB to therefore gradually reduce the size of its balance sheet;

18. Regrets the establishment of the transmission protection instrument (TPI) in July 2022; calls on the ECB to respect not just the legal prohibition of monetary financing but also its economic meaning; stresses in this regard that selectively purchasing government debt amounts to monetarily financing an EU Member State;

19. Stresses that diverging interest rates in the euro area are generally the result of different risk premia on government bonds; stresses that purchases under the TPI would merely conceal the symptoms of loose fiscal policy; calls on Member States to conduct responsible fiscal policies and ensure sustainable debt levels;

Digital euro

20. Welcomes the ECB’s progress on the digital euro project and its ongoing dialogue with Parliament; highlights the expected benefits, such as enhanced strategic autonomy, improved financial inclusion and the availability of an offline back-up payment system;

21. Reiterates that the digital euro should serve as a complement to physical cash, that it should not replace cash entirely and that cash should remain available at all times;

22. Stresses the need for a compensation model for the banking sector, which is tasked with the practical implementation of the digital euro project;

23. Calls on the ECB to take due account of privacy concerns around the digital euro and stresses that its development should become a gold standard in terms of privacy for other financial institutions;

Secondary objectives

24. Calls on the ECB to refrain from taking politically motivated decisions and to stick to its mandate of maintaining price stability; stresses that overstepping this mandate touches on the central bank’s political independence;

25. Stresses that the ECB’s secondary objectives are best achieved when the free market operates in a stable macroeconomic environment, based on predictable price levels, that encourages investment;

26. Stresses that the ECB should prevent distortions in the signalling function of prices given this function’s role in ensuring an efficient allocation of resources; invites the ECB to assess to what extent climate change affects its ability to maintain price stability;

27. Insists that the ECB respect the market neutrality principle in all of its monetary operations; regrets that the ECB’s actions to decarbonise its corporate bond holdings have not followed a market neutral approach by its very definition;

28. Calls on the ECB to use all its available tools to ensure that banks take climate risk seriously in order to mitigate the financial risks resulting from climate change;

Other aspects

29. Underlines that a strengthened international role of the euro would lead to lower interest rates in the euro area, increased status for the EU on the international stage and enhanced macroeconomic stability;

30. Calls on the ECB to look into strengthening the international role of the euro with a view to enhancing its attractiveness as a reserve currency and support market-driven shifts in this direction;

31. Welcomes the attention that the ECB is paying to the risks of cyberattacks; calls on the ECB to ensure the safety and security of the monetary system for its users, especially in the light of ongoing geopolitical developments;

32. Welcomes the finalisation of the Basel III framework, as it will strengthen the resilience of the banking sector;

33. Supports the aim of the ECB to increase female representation by encouraging women to advance in this field; therefore welcomes initiatives such as the ECB Women in Economics Scholarship;

°

° °

34. Instructs its President to forward this resolution to the Council, the Commission and the European Central Bank.

EXPLANATORY STATEMENT

Over the past four years, the European Union has grappled with exceptionally high levels of inflation. Rising energy prices have had a cascading effect on the economy, resulting in increased consumer prices. As the institution tasked with maintaining price stability in the euro area, the European Central Bank (ECB) bears the responsibility of addressing this issue and facilitating a swift return to stable prices. However, it took the central bank over three years to bring inflation back to normal levels. This in contrast to the United States, where the Federal Reserve managed to control inflation more promptly.

The recent decline in both the Harmonized Consumer Price Index (HCIP) and core inflation is certainly encouraging. Nevertheless, it is important to note that the ECB's initial response was delayed and indecisive, allowing inflation to escalate more than necessary. Clearly, its models have underperformed in recent years and should be fundamentally reassessed and improved. With inflation levels now normalised, it is imperative for the ECB to reduce its purchasing programs, which have effectively amounted to monetary financing through unconventional policies. While these programs were legally permissible, the ECB should adhere to the spirit of the EU Treaty, which prohibits the monetary financing of European governments.

On a more fundamental level, the rapporteur underscores the significance of central bank independence. To prevent political interference in its mandate to achieve price stability, the central bank has been granted statutory independence. This autonomy allows the ECB to focus on its objectives without external pressures, which necessitates that it refrains from making political decisions. The rapporteur considers this principle vital for safeguarding the integrity of the common currency and its issuer. In practice, this applies to the ECB’s secondary objectives, which aim to support the broader goals of the European Union. It is essential that the ECB pursues these objectives without compromising its primary focus on price stability or succumbing to political motivations. The rapporteur considers that the ECB should therefore limit itself to fostering a stable macroeconomic environment characterised by low and predictable levels of inflation.

Additionally, the ECB is making progress on the digital euro. This initiative offers clear benefits, including enhanced strategic autonomy and improved financial inclusion. However, it is important to emphasise that the digital euro should complement, rather than replace, physical cash.

ANNEX: ENTITIES OR PERSONS FROM WHOM THE RAPPORTEUR HAS RECEIVED INPUT

The rapporteur declares under his exclusive responsibility that he did not receive input from any entity or person to be mentioned in this Annex pursuant to Article 8 of Annex I to the Rules of Procedure.